2002 (2) TMI 1286 - SC - Central Excise

Levy of excise duty on the beer brewed by the respondent Held that - The excise authorities can levy excise duty only on the beer after it has been manufactured the levy has to be on the quantity manufactured. How this quantity is to be arrived at has to be determined according to Section 32 read with Rule 35. We may, however, note that before the Excise Commissioner no dispute appears to have been raised with regard to the figures and the contention was that the percentage of wastage should have been more than 7 or 10 per cent. Mr. Divan, however, submits that this contention which was upheld by the High Court was raised subsequently. While in the body of the writ petition, it is stated that Rule 35 is violative of the Act, no specific prayer was made in the writ petition, but in the manner in which we have interpreted Rule 35 it appears to us that it is only an enabling provision which will help the excise authorities in calculating what would be the quantity of beer manufactured and fit for human consumption on which excise duty could be imposed. The said Rule is neither invalid nor does it require to be read down. Allow this appeal and set aside the decision of the High Court, but remand the case to the Financial Commissioner for a fresh decision in accordance with law and in the light of the observations made in this judgment.

Issues Involved:
1. Levy of excise duty on beer brewed by the respondent.
2. Interpretation of the manufacturing process of beer.
3. Application of Section 3, 31, and 32 of The Punjab Excise Act, 1914.
4. Application of Rule 35 of the Punjab Brewery Rules, 1956.
5. Validity and interpretation of Rule 35.
6. Determination of the quantity of beer manufactured for excise duty purposes.
7. Allowance for wastage in the manufacturing process.

Detailed Analysis:

1. Levy of Excise Duty on Beer Brewed by the Respondent:
The primary challenge in this appeal was related to the High Court's decision on the levy of excise duty on the beer brewed by the respondent. The High Court had quashed the demand raised by the appellant for the years 1986-87, 1987-88, and 1988-89. The appellant argued that the demand was justified due to the wastage shown by the respondent exceeding the prescribed limits.

2. Interpretation of the Manufacturing Process of Beer:
To understand the controversy, the court examined the beer manufacturing process as described in Mohan Meakin Ltd. v. Excise and Taxation Commissioner, H.P. and Ors., [1997] 2 SCC 193. The process involves several stages, including feeding malt into a Mash Tin, boiling with hops, fermentation, and bottling. The court noted that alcohol is only present after the fermentation process.

3. Application of Section 3, 31, and 32 of The Punjab Excise Act, 1914:
Section 3 specifies 'exciseable articles' including alcoholic liquor for human consumption. Sections 31 and 32 deal with the levy of excise duty. Section 31 allows the State Government to impose excise duty on excisable articles, while Section 32 specifies the manner of levying duty, including on beer manufactured in licensed breweries.

4. Application of Rule 35 of the Punjab Brewery Rules, 1956:
Rule 35 outlines the duty on beer, allowing a 7% wastage deduction. The excise authorities applied Rule 35 to calculate the excise duty payable by the respondent. Show cause notices were issued due to wastage exceeding 10% before 1986-87 and 7% thereafter. The respondent argued that the prescribed wastage rate was insufficient.

5. Validity and Interpretation of Rule 35:
The High Court construed the provisions of the Act and the Rules, following the decision in State of U.P. and Ors. v. Modi Distillery and Ors., [1955] 5 SCC 753. It observed that excise duty was being imposed at a stage before the liquid became potable liquor. The High Court directed that duty should be determined on the actual quantity of potable beer manufactured, allowing a 7% wastage deduction.

6. Determination of the Quantity of Beer Manufactured for Excise Duty Purposes:
The Supreme Court agreed that excise duty could only be levied on beer fit for human consumption. The question was how to determine the quantity of beer manufactured. Section 32 provides that duty is to be levied on excisable articles manufactured or issued from a brewery. The proviso to Section 32, read with Rule 35, suggests using the quantity of raw materials and allowing for 7% wastage to determine the manufactured beer quantity.

7. Allowance for Wastage in the Manufacturing Process:
The court noted that the allowance of 7% wastage is to be considered in arriving at the figure of manufactured beer. It clarified that the excisable product is the quantity of beer produced, not the quantity minus 7%. The court held that Rule 35 is an enabling provision to help calculate the quantity of beer manufactured and fit for human consumption.

Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's decision, and remanded the case to the Financial Commissioner for a fresh decision in accordance with the law and the observations made in the judgment. The court clarified that excise duty should be levied on the actual quantity of beer manufactured, considering the wastage allowance as per Rule 35.

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